Real News‎ > ‎2014‎ > ‎February 2014‎ > ‎

4th February 2014

Singapore Real Estate

Developers' profit spikes may be due to accounting standard: OCBC

Source: Straits Times

Investors take note: An accounting standard can make a huge difference to a developer's bottom line.

The standard says developers can book profits from certain types of projects only upon completion of those projects - not profits racked up progressively.

Demand for homes in core central region may pick up

Source: Channel News Asia / Singapore

Some market watchers said demand for homes in the core central region could pick up as early as the second half of this year, as prices continue to moderate.

Property consultancy Savills added that some unsold units in the city were even transacted at below valuation.

According to recent marketing materials, Hijauan on Cavenagh is offering units at prices from as low as S$1,701 per square foot.

Located near Orchard Road, a 915 square foot two-bedroom unit is available for just under S$1.9 million.

Property agents said the 41-unit Hijauan project is about 75 percent sold.

It is not the only project selling below valuation.

Alan Cheong, research head at Savills Singapore, said: "We've heard of anecdotal evidence where pricing has been below valuations. In the Newton area for example, prices six months ago was S$1,800 per square foot.

"Today, you can get it for S$1,700 to S$1,600 per square foot for a 1,700 to 1,800 square-foot apartment.

"For core central region, it is probably going to be quite the norm -- (as) we expect more aggressive marketing strategies by developers."

In particular, analysts said the larger units will be a tough sell as cooling measures and loan curbs have affected the buyer's ability to afford them.

Savills said the pricing sweet spot for city homes now is probably between S$1.5 million and S$1.7 million.

Home prices in the core central region fell 1.9 percent in 2013 and some analysts expect to see another 5 percent drop this year. They said that could potentially trigger a return of buying interest for core central region homes.

Chris Koh, director of Chris International, said: "By middle of this year, we would have looked at four quarters of correction. Once the prices adjust by 5 to 10 percent, it would look significant.

"And the moment it looks significant, my gut feel is the buyers and investors who have been waiting on the sidelines will then pour back into the market again."

Market watchers said demand for city homes could also grow if prices of units in the city fringe, or rest of central region, continue to recover.

Home prices in the city fringe rose 0.4 percent in the fourth quarter of last year, compared to the 2.1 percent decline for city homes.

- CNA/xq

New subletting quota likely to affect Simei, Yishun, Bt Merah first

Source: Channel News Asia / SIngapore

The new subletting quota for foreigners is likely to hit estates such as Simei, Yishun and Bukit Merah earlier than other areas.

This is because a larger non-citizen crowd is employed in offices and other places of work located in these estates, according to analysts.

The Housing and Development Board (HDB) announced the quota on subletting of whole flats to non-citizen subtenants some two weeks ago.

The quota is set at 8 per cent per neighbourhood and at 11 per cent per block.

From January 16, flat owners are not allowed to sublet their whole flats to foreigners, other than Malaysians.

Those who are currently subletting their flats may continue to do so until the contract expires or is terminated.

HDB said some towns are already seeing more foreigners renting whole units. These include the central area, Clementi, Jurong West, Queenstown and Sengkang.

Property analysts Channel NewsAsia spoke with expect more areas to hit the quota, such as Changi, Simei, Tampines, Kallang, Bukit Merah, Yishun, Buona Vista and Toa Payoh. These areas are where workplaces of foreigners are typically located.

Eugene Lim, key executive officer at ERA Realty Network, said: "Near employment centres, near hospitals, near centres of learning -- estates in these locations will probably hit the quota earlier than other towns."

Two weeks after the new rule was implemented, analysts said landlords are still coming to terms with it.

Chris Koh, director of property consultancy Chris International, explained: "For areas which have hit the quota, the pool of tenants is smaller and therefore landlords have to be more realistic in their prices. But for others, they will think that they are not affected yet and can still (dictate) the rent they want.”

HDB said with the quota, it hopes to prevent the formation of foreigner enclaves in estates and maintain the Singaporean character of the heartlands.

But analysts said as rental incomes fall, some flat owners may try to circumvent the rules.

Colin Tan, director and head of research and consultancy at Suntec Real Estate Consultants, said: "They may get a Malaysian to rent it, and others (foreigners) may then come in to stay.

"Some landlords may take the chance and say that they rent only two rooms when actually they are renting all three rooms. So to make sure that this policy is effective, there should be spot checks."

Currently, flat owners are allowed to sublet only two bedrooms per flat.

Mr Koh added: "I am also concerned that as more private properties achieve their TOPs, many of these properties are bought by HDB upgraders.  

"So when they start collecting their keys to the new condos in the next two years, majority would prefer to rent their flat, and move into the condos. And that is when the supply issue kicks in -- we end up with more flats for rent, and that would have definitely have an impact on prices."

Analysts said the authorities will be closely monitoring the market reaction and may tweak the quota accordingly.  

- CNA/xq

Self-storage firms gain from space crunch

With at least 15 new self-storages opened since 2011, number of such facilities has nearly doubled to 35

Source: Business Times / Singapore

SMALLER houses, high shop rentals and a general scarcity of space may be a bugbear for many people and businesses in Singapore. But for one sector, these are the very reasons operators are thriving.

Self-storage firms are experiencing boom time in the last two years, with at least 15 new ones being opened since 2011, according to research by Colliers International. The number of facilities here has nearly doubled with at least 35 now.

Altogether, these offer over 1.7 million square feet of space, up from 1.3 million in 2011, that can be leased to individuals and small businesses.

Self-storage is a concept popularised in urban areas such as Hong Kong and Manhattan. It was introduced here around 10 years ago by self-storage company StorHub in 2003.

-By Raphael Lim

Real Estate Companies' Brief

Small-mid cap property


FOR its Q1FY14 (end-Sept 2013), Oxley Holdings announced a net income of S$250.8 million, up 37 times y-o-y. This comprised cash earnings, not valuation gains, and almost matched the combined earnings of CapitaLand and City Developments, the two largest domestic developers, over that quarter.

What caused Oxley's earnings spike? Under International Financial Reporting Standard 115, its 728-unit industrial project, Oxley BizHub, had its profits booked wholly upon attaining TOP (temporary occupation permit) over the quarter. This is known as the Completion of Contract (COC) recognition method and is required for commercial and overseas projects, unlike the progressive profit recognition (POC method) usually seen for domestic residential projects.

Cache Logistics Trust

We recently hosted Cache Logistics Trust's (Cache) management to a post-results feedback session with investors. Positive reversions are likely for the master-leases coming due in 2015 (34 per cent of portfolio), based on current market rents. Management was more optimistic on the prospects for higher reversions for properties in the eastern region of Singapore, where slower growth in new supply will ensure that occupancies remain high.

Views, Reviews & Forum

HDB’s eco plans to be refined

Source: Today Online / Voices

We thank Mr Yang Chun Hong for his letter, “Extend eco-features to older HDB estates” (Jan 25). The Housing and Development Board will extend the standard suite of eco-features to all new flats, including rental flats, from this month.

We have also embarked on making our existing estates more environmentally sustainable. In 2012, we launched the pilot HDB Greenprint programme in Yuhua, where we seek to bring energy-efficient water management and waste management features to this estate. We will use the findings from this project to refine our Greenprint plans, before rolling them out to other estates.

- By Larry Cheng, Director(Building Designs & Standard), HDB

Global Economy and Global Real Estate

Signs of bubble in London property: Report

Source: Straits Times

London's housing market is beginning to show "bubble-like conditions" as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report. Home owners are now borrowing the same multiples of income to purchase real estate in the British capital as they were before the financial crisis, the London-based group sponsored by EY - formerly Ernst & Young - said in the report released yesterday.

London housing market shows bubble risk, warns EY Item Club

Overseas investors are bidding up prices while buyers take on more debt

Source: Business Times / Property

London's housing market is beginning to show "bubble-like conditions" as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report yesterday by the EY Item Club.

Homeowners are now borrowing as much relative to their income to purchase real estate in the UK capital as they were before the financial crisis, the London-based group sponsored by EY, formerly Ernst & Young, said. The average London home will cost about £600,000 (S$1.2 million) by 2018, it estimates. It is around £404,000 now, according to the Land Registry.

Prices across most of the UK "remain well below their pre-crisis peaks, and there seems little danger of a bubble", Andrew Goodwin, senior economic adviser to the EY Item Club, said in the report.

"But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern."

-From London, UK

Mitsubishi halts defective homes' sale, to seek compensation from builder

Source: Business Times / Property

Mitsubishi Estate Co, Japan's biggest developer by market value, halted sales of residential units in Tokyo after finding defects and will seek compensation from the builder Kajima Corp. 

The shares in both companies fell.

The building in Tokyo's upscale neighbourhood, Aoyama, was found to require some construction repairs including to some of its pipes, Mitsubishi Estate said in a statement.

The project was constructed by Kajima along with Kandenko Co and Hamano Densetsu Inc, which make electrical and machinery facilities, according to the statement.

The details of the compensation amount will be decided at a later date, said Masayuki Watanabe, a spokesman for Mitsubishi Estate.

-From Tokyo, Japan

Mortgage-deal spoils divide winners and losers in US states

Governors and state AGs clash on use of billions of dollars in fine monies

Source: Business Times / Property

Hundreds of millions of dollars in mortgage-fraud settlements from JPMorgan Chase & Co and other banks are providing a windfall to state attorneys-general - and creating a new class of political winners and losers.

In New York, Attorney- General Eric Schneiderman learned last November that his office was getting US$613 million from JPMorgan - about triple his annual budget. He said he would use the cash to reimburse victims and finance investigations. Governor Andrew Cuomo, a fellow Democrat, questioned AG Schneiderman's hold on the money and a dispute over the cash ensued.

California Attorney-General Kamala Harris, seen by some as a potential gubernatorial candidate in 2018, used her US$300 million share from JPMorgan to reimburse public-pension funds for losses on mortgage investments.

Lisa Madigan, her Democratic counterpart in Illinois who considered a run for governor this year, applied her US$100 million share to the state's pension systems, which are facing a worst-in-the-nation US$100 billion shortfall. She trumpeted her move with a news release.

-From New York, US

Romanians reject euro home loans after Hungary disaster

Govt offers US$4.2b in loan guarantees to first-time buyers

Source: Business Times / Property

Romania, using record-low interest rates to rebuild a housing market devastated by the economic crisis, is forcing homebuyers such as Vlad Popescu to abandon cheap euro-denominated mortgages in the name of financial stability.

In October, the government changed the terms of a four-year-old programme for euro loans to cover credit only in the Romanian currency, the leu. In the following months, banks, led by Erste Group Bank AG's Banca Comerciala Romana SA and BRD-Groupe Societe Generale SA, accelerated leu mortgage lending. It grew at a record annual pace of 90 per cent in December.

Romania is providing US$4.2 billion in loan guarantees to first-time homebuyers such as Mr Popescu. The government is betting that borrowers in the European Union's (EU) second poorest country will accept higher payments in exchange for local currency loans that won't jump in cost if the leu plunges against the euro. In Mr Popescu's case, it's working.

"I got used to the idea," said Mr Popescu, who initially sought a loan in euros for his two-bedroom, 295,000 lei (S$112,990) Bucharest apartment before taking a leu-or-nothing offer for a government guarantee. "My monthly payments went up by 300 lei, but they're fixed now and I don't expect any significant changes in the next few years."

-From Bucharest, Romania

China home price gains slow in Jan, surveys show

Source: Business Times / Property

Gains in home prices in China eased in January, two private surveys showed, adding to signs of stabilisation in the housing market as government curbs start to take the edge off years of sustained gains.

Prices of new homes in 288 major cities in January rose 9.39 per cent in January from a year earlier, easing from December's annual rise of 10.04 per cent, a poll by real estate services firm E-House China showed on Saturday.

That was the slowest gain in nine months, snapping seven consecutive months of double-digit annual gains.

A separate survey by the China Real Estate Index System (CREIS) showed average prices in the 100 biggest cities rose 0.63 per cent in January from December, when they had risen 0.7 per cent, to post a 20th straight month gain.

-From Beijing, China

S Korea home prices rise for fifth straight month

 Jan data up as low prices, cheap loans draw buyers back

Source: Business Times / Property

South Korean house prices rose for a fifth straight month in January, as consumers' growing confidence in Asia's fourth-largest economy nourished a recovery from the longest sequence of price declines on record. The property market is still below levels seen six years ago when the market slumped after the 2008-2009 global financial crisis, according to real estate agents.

But data released yesterday by Kookmin Bank, the country's top mortgage lender, showed house prices rose 0.11 per cent in January from December as a combination of low prices and cheap borrowing has begun to draw buyers back.

On a yearly basis, prices rose 0.54 per cent last month and at the fastest pace since October 2012.

"The fact that housing prices hit bottom and that interest rates on mortgages are cheap right now are extra incentives to buy," said Lee Hyeon-woo, a 30-year-old office worker.

-From Seoul, South Korea

Aussie home prices up 1.2% in Jan

Source: Business Times / Property

Home prices across Australia's major cities rose 1.2 per cent in January, from the previous month, extending a strong run that has boosted household wealth and confidence.

Figures from property consultant RPData-Rismark showed that overall dwelling prices were up 9.8 per cent compared to January last year, led by a 13.4 per cent jump in Sydney. Prices in Melbourne followed with a gain of 11.9 per cent while Perth saw an increase of 6.9 per cent.

Home values were now 4.8 per cent higher than their previous peak in October 2010.

While higher prices have stirred talk of a bubble, they are considered by policymakers as necessary to encourage a much-needed revival in home building.

-From Sydney, Australia

Want a NY condo with a personal shopper?

Source: Business Times / Property

On Central Park South here, a luxury building is offering its residents direct access to Bergdorf Goodman's buyers, who can find them that special accessory from Paris. In Tribeca, a developer hired educators from the 92nd Street Y to design the basement playroom.

But perhaps nothing quite says modern chic like having a poet on board, like Howard Altmann, who wrote a short work, Once, as part of the marketing of the Schumacher, a new condo on Bleecker Street: "Once," the poem closes, "In the lifetime of a neighbourhood / An opportunity emerges / To make a singular imprint / In how we live."

It is old hat that a well- known architect and interior designer are required to play in New York's field of ultra-fancy real estate development. But with the intense competition to capture the US$3 million-plus buyer, the cast of characters and add-ons involved in the city's most luxurious new condominiums is growing ever longer.

"If you look back six or seven years ago, amenities were kind of Sheetrock boxes in the basement of buildings where you put a few treadmills and called it the gym," said Michael Iannacone, the executive at Related Cos who is leading the redevelopment of One Madison, a luxury building that will have, among various perks, a glass-walled steam room with a floor-to-ceiling view of Madison Park.

-From New York, US

Designer Krakoff Sells NYC Townhouse for $51 Million

Source: Bloomberg / Luxury

Fashion designer Reed Krakoff, the former president and creative director of Coach (COH) Inc., sold his townhouse on Manhattan’s Upper East Side for $51 million.

The brick-and-limestone home at 113-115 E. 70th St. was sold to an entity called 70th Street Acquisition LLC, which has an address in Hewlett, New York, according to New York City property records filed today.

Krakoff, 49, who joined Coach in 1996 and helped build the leather-goods maker into a $5 billion brand, left the company last year to run a luxury fashion business that bears his name. He and his wife, Delphine, an interior designer, bought the 18,000-square-foot (1,672-square-meter) home for $17.4 million in 2005 and “quietly” put it on the market for $52 million about four years later, according to the New York Observer.

The neo-Georgian style home, built in 1910, had been converted into 12 apartments before the Krakoffs renovated it, Vogue magazine reported in 2010. The property was gutted by a fire in 2006, according to the New York Times.

A spokeswoman at Reed Krakoff LLC said she couldn’t comment on the townhouse sale.

A 2011 profile of Krakoff in the New Yorker said the 70th Street townhouse featured a library with about 10,000 books and a ground-floor bathroom that was “covered entirely in golden snakeskin.”

-By Craig Giammona

London Office Drought Sparks Hunt for 1980s Relics: Real Estate

Source: Bloomberg / News

Modern office towers with nicknames like the Walkie Talkie and the Cheesegrater are being completed high above the City of London, giving the impression there’s plenty of room for a resurgent financial industry. Closer to the ground, developers are preparing for a shortage of space.

Investors including Blackstone Group LP (BX), the world’s biggest buyout firm, Brookfield Office Properties Inc. (BPO) and Land Securities Group Plc (LAND), the U.K.’s largest real estate investment trust, are looking for well-worn office buildings from the 1980s and early 1990s to buy and refurbish, as rising demand and a shortage of prime space in the City lifts prices and rents.

“If the bricks and bones of buildings are of sufficient quality, we reposition the product and benefit from the supply and demand story,” James Lock, a managing director at Blackstone’s real estate unit, said by phone.

The 2008 credit crisis caused development to stall in the City, leaving few options for companies seeking large offices in the center of the financial district. Only six developments have as much as 100,000 square feet (9,300 square meters) available to occupy over the next 12 months, according to Chris Vydra, an executive director at broker CBRE Group Inc. (CBG) Space sought in the area rose 15 percent in the six months through November, broker Knight Frank LLP said.

Towers Taken

Developers that started office towers in 2010 have leased most of the space before the buildings are completed. The 20 Fenchurch Street tower, a Land Securities and Canary Wharf Group (SBD) project nicknamed the Walkie Talkie, is 64 percent leased, with tenants including RSA Insurance Group Plc and units of Liberty Mutual Insurance Co., and deals for another 23 percent awaiting legal approval, according to the companies. British Land Co. and Oxford Properties Group Inc. said they have agreements for more than half of the Leadenhall Building, known as the Cheesegrater, ahead of completion in the middle of this year.

Investors that upgrade existing properties and retain the basic shape can put offices on the market about six months faster than they could by constructing a new building, consulting firm EC Harris LP said, using the example of a 200,000 square-foot project. A property of that size would be large enough for about 1,850 workers, broker Savills Plc (SVS) estimated.

Helical Bar Plc (HLCL), a London-based developer, and Crosstree Real Estate Partners bought office properties at 207 Old Street on the fringe of the City two years ago. Refurbishment began in January after the investors determined that they wouldn’t have to demolish the buildings and start from scratch. Helical Bar expects to make a profit of at least 20 million pounds ($33 million) from its 33 percent stake in the 180 million-pound project, development director Gerald Kaye said in an interview.

Faster, Cheaper

Renovating “is generally much cheaper in terms of money and time, and you don’t have to have a huge debate with the planners,” Kaye said. “If you can turn around a refurbishment quickly, then you’re well placed to capitalize.”

At 20 Old Bailey, across the street from the courthouse where writer Oscar Wilde was tried for gross indecency in 1895, Blackstone plans “a complete refurbishment of the space, taking it back to the frame, and the introduction of a best-in-class building,” Lock said.

Leadenhall Court, a seven-floor structure built in 1988 and bought by Brookfield in 2012, will either be renovated or redeveloped -- demolished and replaced by a new structure built on the same site -- by the New York-based company when the lease expires, spokeswoman Carlin Fier said. The property is close to the Lloyd’s of London building, the center of the city’s insurance industry, and is leased to Royal & Sun Alliance Insurance Plc.

Short Term

The “place to hunt for ourselves and others is that shorter-term income bracket where we can asset manage or refurbish and redevelop buildings,” Martin Jepson, a senior vice-president at Brookfield, said in an interview. “That’s the strategy people will naturally look for when there’s low supply.”

Viewings by potential tenants at 99 Bishopsgate, redeveloped in 1995, doubled after Brookfield spent 5 million pounds upgrading the lobby, terraces and common areas in October, Jepson said. The office building near Liverpool Street railway station has 60,000 square feet of vacant space.

“I’ll be disappointed if we don’t see this leased up in the early part of the year,” he said.

Quick Turnaround

Speed is the key. Investors who now start refurbishing or constructing new buildings run the risk of greater competition arriving on the market before the work is finished.

“People have to get in and out and do refurbs before anyone sees the potential for oversupply, which will come,” Tom Elliott, head of City investment at Land Securities, said in an interview. The company, the U.K.’s largest real estate investment trust, is also looking for buildings that can be upgraded, he said.

The amount of new space completed in 2012 was the lowest in more than 25 years, Deloitte Real Estate said in a May report. About 1 million square feet was delivered in 2013, twice the level of a year earlier, according to CBRE.

Competition for older buildings to renovate is pushing up selling prices. Blackstone agreed to pay more than 90 million pounds to Mitsui Fudosan Co., Japan’s largest developer, for 20 Old Bailey, according to two people with knowledge of the deal who asked not to be named because the details are private. That’s about 10 million pounds more than the offer price, one of the people said. Blackstone and Mitsui Fudosan declined to comment on the price.

Competition Rises

Henderson Group Plc (HGG), another London-based developer and property investor, is becoming more selective in choosing refurbishment opportunities because of the increased competition in the market, director of property Nick Deacon said by e-mail.

Rising demand spurred by an improving U.K. economy will probably lead to rent increases of at least 10 percent a year in the district through 2016, Goldman Sachs Group Inc. real estate analysts including Julian Livingstone-Booth said in a note to clients last month.

The prospect of higher rents is attracting buyers, especially from overseas, for prime office space in the City. That’s pushing up prices and increasing the reward for developers that refurbish buildings and secure tenants. Yields for prime properties in the City fell to 4.75 percent from 5.25 percent in the year through September, indicating an increase in values, Knight Frank said.

“Demand from investors for London stock appears relentless,” Henderson’s Deacon said. “It appears we have a new potential buyer enter the market every week.”

Broadgate Project

GIC Pte of Singapore in December bought Blackstone’s 50 percent stake in London’s Broadgate office complex, most of which was constructed in the 1980s. The sovereign wealth fund had agreed to pay more than 1.7 billion pounds for the stake, two people with knowledge of the transaction said in August. Some of the older buildings will be refurbished, including 100 Liverpool Street, according to the Singapore wealth fund and British Land Co Plc (BLND), which owns the other 50 percent of the project.

Companies that can’t get out of their leases until 2017 are already in talks with Blackstone about new space, Lock said. “The underlying business confidence, combined with the fundamental reality that supply is tight and competition is increasing, means occupiers have to be proactive earlier.”

-By Patrick Gower and Neil Callanan

London Housing Market Shows Rising Bubble Risk as Asians Buy

Source: Bloomberg / Luxury

London’s housing market is beginning to show “bubble-like conditions” as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report today by the EY Item Club.

Homeowners are now borrowing as much relative to their income to purchase real estate in the U.K. capital as they were before the financial crisis, the London-based group sponsored by EY, formerly Ernst & Young, said. The average London home will cost about 600,000 pounds ($980,000) by 2018, it estimates. It’s around 404,000 pounds now, according to the Land Registry.

Prices across most of the U.K. “remain well below their pre-crisis peaks and there seems little danger of a bubble,” Andrew Goodwin, senior economic adviser to the EY Item Club, said in the report. “But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern.”

Surging London home prices, buoyed by demand from overseas investors and government initiatives to aid buyers, have prompted economists, analysts and politicians to warn of unsustainable gains. Asia has been a particularly strong source of demand for the best London properties, EY Item Club said, citing brokers. Investors from countries such as China and Singapore are taking advantage of the pound’s depreciation since the financial crisis to buy London homes.

Overseas-Buying Surge

People living outside the U.K. bought half of all new homes sold in London’s best neighborhoods in the two years through June, broker Knight Frank LLP said in October.

Reducing the risk of a London property bubble could be difficult because values in prime districts have outperformed the city’s peripheral areas, according to the EY Item Club report. Values in London’s best neighborhoods, such as Mayfair and Knightsbridge, are 27 percent above their 2007 peak, broker Savills Plc said in November. That’s more than double the gains for Greater London, according to Land Registry data.

“Bursting a bubble at the luxury end of the market, which continues to attract interest from international cash buyers with the seemingly irresistible global draw of London’s X-factor, may prove tricky,” Dean Hodcroft, U.K. and Ireland head of real estate, hospitality and construction at EY, said in the statement.

Pound’s Gains

The pound’s recent gains against Asian currencies and an abatement of the euro region’s debt crisis will reduce demand for homes in the U.K. capital’s best areas, the report forecasts. Rising supply will also curb home-value gains in London’s prime districts, it said.

London’s prime housing market “has completely different drivers to the rest of the U.K.,” according to the report. “There is a strong argument for ignoring the excesses of the prime central London market” and “arguably it would be more appropriate to treat it as an investment market, rather than a residential market.”

Home values in the capital rose 0.6 percent last month from December compared with a national gain of 0.3 percent, Hometrack Ltd. said in an e-mailed report today.

Average U.K. house prices will rise 8.4 percent this year, 7.3 percent in 2015 and about 5.5 percent in 2016, EY Item Club estimates.

-By Neil Callanan

IMF Says Home Prices, Debt Concerns for Canada Banks

Source: Bloomberg / Luxury

Canada’s banks are able to weather severe financial stresses, though elevated home prices and high household debt are still a worry, the International Monetary Fund said today.

“Mortgages and consumer loans secured by real estate represent the single largest exposure of banks, and elevated house prices and high household indebtedness remain an area of concern,” the IMF said in a report on Canada’s financial industry. The Washington-based lender said housing is a worry even with a “substantial level” of government-guaranteed mortgage insurance.

Canada’s financial system, ranked the world’s soundest for six straight years by the World Economic Forum, continues to be resilient, the report said. The country’s banks are “well capitalized, profitable and continue to report low non-performing loans,” the report said in its Financial System Stability Assessment report for Canada.

“Canada’s financial system successfully navigated the global financial crisis, and stress tests suggest that major financial institutions would continue to be resilient to credit, liquidity, and contagion risks arising from a severe stress scenario,” the IMF said.

The country’s banks could handle a “liquidity shock as characterized by a withdrawal of funds and haircuts on liquid assets,” the IMF said. While lenders face risks because of their reliance on wholesale-funding markets, exposures between banks and other counterparties are small, keeping spillover risk quite low, the IMF said in its report dated Jan. 10.

Big Six

The strength of Canadian banks and insurers makes it difficult for newcomers to break into the market, the IMF said. Canada’s six big lenders hold 93 percent of bank assets and three domestic insurers hold three quarters of life and health coverage, according to the report.

Canadian life insurers remained solvent even in the severe stress tests. Life insurers, which make up 16 percent of financial industry assets, saw their solvency ratios eroded somewhat as guaranteed-benefit plans and a prolonged period of low interest rates ate into profits, the IMF said.

The IMF’s solvency stress tests results suggest that, while all banks would fall below the regulatory threshold during severe economic distress, resulting recapitalization needs are “manageable.”

-By Doug Alexander and Katia Dmitrieva

Starwood Waypoint Rises in First Day of Trading as a REIT

Source: Bloomberg / Luxury

Barry Sternlicht’s Starwood Waypoint Residential Trust rose 2.6 percent in its first day of trading after becoming the latest single-family home landlord to list shares on an exchange.

The real estate investment trust was spun off from Sternlicht’s Starwood Property Trust Inc., a commercial-property investment and finance REIT based in Greenwich, Connecticut, following a merger with Waypoint Homes. The shares climbed to $30 in New York on a day the Standard & Poor’s 500 Index (SPX) lost 2.3 percent.

Corporate landlords have raised more than $20 billion to buy as many as 200,000 homes in the past two years, creating a new institutional asset class out of the traditional mom-and-pop business of single-family rentals, according to Jade Rahmani, an analyst with Keefe Bruyette & Woods Inc. The investors are seeking to profit from rising prices and increased demand for leasing after 4.8 million homeowners lost their properties to foreclosure since 2008, CoreLogic Inc. data show.

“It gives us much larger scale,” Starwood Waypoint Co-Chief Executive Officer Gary Beasley said in a telephone interview from New York. “We anticipate increasing that buying cadence now that our deal is closed.”

Starwood Waypoint controls more than 6,700 homes and non-performing loans, focused in Florida and Texas, with a total value of almost $1.1 billion, according to Beasley. Oakland, California-based Waypoint, founded in 2009 as one of the first corporate single-family landlords, separately owns more than 5,000 homes through 11 funds, which it will continue to manage.

Credit Line

Starwood has been buying $60 million of homes and non-performing loans a month, a pace Beasley said he expects to accelerate when the company closes on a $500 million line of credit. He declined to name the lender because the deal isn’t completed.

The new corporate landlords have had mixed results in the stock market after going public. American Homes 4 Rent (AMH), the second-largest single-family landlord with more than 21,000 homes, is up 3.8 percent from its July 31 initial public offering, including reinvested dividends. Silver Bay Realty Trust Corp. (SBY), based in Minnetonka, Minnesota, and Scottsdale, Arizona-based American Residential Properties Inc. (ARPI)are both trading below their IPO prices.

Loan Modification

Non-performing loans account for about a quarter of Starwood Waypoint’s value, Beasley said. About half of those loans will end up as additional rental properties, while others will be sold or stay in the hands of the current owners after a loan modification, he said.

Sternlicht is chairman of Starwood Waypoint, Starwood Property Trust (STWD) and Starwood Capital Group, which manages $32 billion of assets.

U.S. home prices climbed 24 percent since bottoming in March 2012, around the time corporate investors started buying in large numbers, according to the S&P/Case-Shiller index of prices in 20 U.S. cities. Investor purchases accounted for about one in five home sales last year, according to the National Association of Realtors.

Blackstone Group LP (BX)’s Invitation Homes, the largest single-family rental landlord with more than 41,000 properties, slowed its buying pace as the cost of houses rose, Blackstone President Tony James said last week.

The declining U.S. homeownership rate means there’s still plenty of opportunity for single-family rental investors, Beasley said. The share of Americans who own their homes was 65.2 percent at the end of 2013, down from a high of 69.2 percent in 2004, according to the Census Bureau.

“We still feel that’s going to continue to go down a little bit given the lack of financing availability for end users,” Beasley said.

-By John Gittelsohn